Jurisdiction over derivatives disputes in financings: ISDA documents trump loan agreement

BNP Paribas v Trattamento Rifiuti Metropolitani [2019] EWCA Civ 768

This case concerns a jurisdictional battle in which Lord Justice Hamblen took the opportunity to re-iterate some key principles concerning choice of law and jurisdiction, as well as business parties' freedom to contract.

The outcome was not surprising, cementing the English courts' well-established approach to uphold contracts negotiated at arms' length between business people.

The Court of Appeal noted the implausibility of sensible business people agreeing inconsistent jurisdiction clauses.

Facts

On 29 October 2008, Trattamento Rifiuti Metropolitani (TRM) entered into a facility agreement with a syndicate led by BNP Paribas S.A. (BNPP) as arranger and agent (through its Milan branch) (the Facility Agreement).

The Facility Agreement describes BNPP as 'Hedging Bank' for the purposes of interest rate hedging arrangements, but BNPP was not party to the Facility Agreement in that capacity.

The Facility Agreement was governed by Italian law and "any dispute relating to the interpretation, conclusion, performance or termination of this contract or otherwise relating to it shall be within the exclusive competence of the Court of Turin".

In order to comply with its interest rate hedging obligations to the lenders under the Facility Agreement, TRM entered into a swap on 23 March 2010, the documentation consisting of a 1992 ISDA Master Agreement, Schedule and Confirmation (the Swap).

The ISDA Master Agreement was governed by English law, with the parties submitting to the jurisdiction of the English courts.

In the course of later correspondence and meetings during 2016, TRM made allegations which led BNPP to issue a claim for negative declaratory relief in respect of the Swap.

TRM applied to the English courts to dismiss BNPP's claim for want of jurisdiction. In particular, it point to a provision in the Swap which stated that "in case of conflict between the provisions of this Agreement and the [FA] and the [ICA], the provisions of the [FA] and the [ICA] as appropriate shall prevail".

TRM was unsuccessful, the High Court concluding that BNPP's claim relating to the Swap fell within the English jurisdiction clause in the Swap, rather than the Turin jurisdiction clause contained in the Facility Agreement.

TRM appealed to the Court of Appeal.

Principles

Hamblen LJ considered previous authorities and re-affirmed the following principles:

• A broad, purposive and commercially-minded approach is to be followed
• Where the jurisdiction clauses are part of a series of agreements, they should be interpreted in the light of the transaction as a whole, taking into account the overall scheme of the agreements
• Where the parties' overall contractual arrangements contain two competing jurisdiction clauses, the starting point is that a jurisdiction clause in one contract was not intended to capture disputes more naturally seen as arising under the other, related contract
• Competing jurisdiction clauses are to be interpreted on the basis that each deals exclusively with its own subject matter and they are not overlapping, provided the language and surrounding circumstances so allow.

Decision

Applying these principles to the facts at hand, the judge concluded that:

• Wide words such as 'relating to' the contract may capture broader claims, such as related tortious claims, but would not normally extend to claims under a different contract
• The conflicts provision merely meant that, as far as the provisions in the Swap were in conflict with those under the FA and the ICA, then the latter were to prevail. An agreement related to parallel jurisdictions did not involve a conflict; furthermore, the conflicts provisions applied to the substantive provisions of the contracts, not collateral agreements as to jurisdiction
• Although there would be a factual overlap, a claim under the Facility Agreement was "a different claim made under a different contract in relation to a different legal relationship to a claim under the Swap"
• Separately, turning to the wording of the declarations sought by BNPP, the Court also determined that the specific claims were 'sufficiently anchored' in the Swap to fall under the jurisdiction of the English courts.

Comment

English judges have confirmed their hands-off approach when it comes to businesses entering into clearly worded contracts. This case affords another opportunity to reaffirm that principle, and gives further clarity on the issue of competing jurisdiction clauses.

Parties should ensure they are completely aware of their contractual arrangements and how these dovetail, particularly with regards to oft-forgotten boilerplate clauses.